To say it’s the Wild Wild West out here is putting it lightly, and how realtors handle multiple offers is the primary reason. There isn’t a standard way to handle a bidding war – and heck, we don’t even agree on what is confidential, and what isn’t. Here is the variety of opinions from a FB thread:
Even when presented with a copy of the actual verbiage from our contracts, she comments, “Wrong”.
Is anyone surprised why buyers are so frustrated?
With so many buyers and few homes for sale, the auction is the most appropriate format to sell homes. Seller is entitled to a reserve. All buyers should have pre-approval letters and every offer is verified by an independent third party for legitimacy to protect each buyer against fake bids. Buyers see all bids and can decide to bid more. Why isn’t this format widely used in hot real estate markets?
Would it be fair to observe that there is little incentive for the selling agent to get the highest price for their sellers? Why work hard for an extra $10k selling price when it only generates $200 more commission above the $20k already earned on a $1M house?
A tiered commission scheme with a base commission followed by an increasing percentage of incremental price gain makes more sense. I’m guessing getting 20% commission on every extra $10k would be a good incentive.
The existing fixed commission scheme actually works against the sellers’ interests because the sellers agent just wants to get the deal done, and giving the buyer a good deal gets it done.
Why isn’t this format widely used in hot real estate markets?
Beats me! The word ‘auction’ might imply that you’re giving it away, which we know sellers hate!
But there will come a day when Zillow will pioneer the practice, and change the real estate selling world.
The existing fixed commission scheme actually works against the sellers’ interests because the sellers agent just wants to get the deal done, and giving the buyer a good deal gets it done.
These are the listing agents’ motivations:
1. Make a deal with a buyer who will close. You can see this theme in the FB responses above – agents who know it all won’t take the highest offer if they believe it might have a problem closing. But how many are mortgage experts and can qualify a buyer on the spot? Virtually none. Instead, they will take the safest bet, and this is why removing all contingencies is in vogue – to appease the listing agent who looks for easy instead of best.
2. Maximize the gossip content around the water cooler.
3. Push the sales price higher to make more commission. This is the least of their worries, by far.
With the market flooded with cash currently, we should see some escrows cancelling and deposits lost. Listing agents insist on turning the screws on the contingency periods, closing times, and other terms just because they can, not because they need to. There will be buyers who aren’t going to take it, and rather lose their deposit than be taken advantage of.
Buyer’s remorse is real. On Crater Rim, there was a buyer who offered to pay $1,200,000 on our $1,100,000 listing. But when I asked the next morning if they would consider a 5-day rentback so the sellers could close on their replacement property and move, they said no, and bailed. They had professed their love for the home, mentioned that they had lost others and really wanted this one. But by the next day it had wore off.
This is an interesting conversation because of course a transparent, auction style approach makes sense, but, for a Seller there are some other considerations;
It is better for a Buyer to know what their boundaries are so that they are comfortable in making a realistic offer that they can stand behind and support financially.
An escalation clause of some number makes it too easy for someone to become too emotional and go out of their comfort zone and then potentially back out of the sale because now they feel foolish for paying more than anyone else.
For the other reasons you pointed out the highest offer is not always the best offer. You do have to think about the temperament and style of who you’re going to work with on a large transaction.
As a seller in this market, an auction will garner the highest price. No doubt in my mind. Cut out the all the cat and mouse bullshit and see who has the bigger wallet or suffers from “FEMO.”
Start the auction with all cash buyers. Once the highest cash price is achieved, have the buyers with financing enter the auction( if you want to open it up to them) but with no offers subject to appraisal. Require all buyers to due their home inspection 72 hours prior to the auction. No subject to inspections. Can you do that?
Many new buyers have never seen a real shitty real estate market. Old school buyers have seen several since the 1970s. There are some real estate dinosaur investors who have seen even more. Today’s market is insane. And poof…..it’s gone.
Can you do that?
Yes, the big fancy auctions just do open house for two weeks prior, and if you what to bring your own inspector, then feel free.
If home is occupied, then the seller can provide a copy of a recent home inspection to each participant – and fix any defects prior to auction.
Make it look like a model, gather around the buyers and let the egos run away with it.